Investors in every country are apt to follow their local stock market as a benchmark. The British follow the FTSE, Germans watch the DAX, and the Japanese pay attention to the Nikkei. American investors are drawn to use the S&P 500 as a benchmark because it’s familiar and is the most widely reported index in U.S. news. What Americans are less likely to hear is that the S&P 500 represents only a portion (about 80%) of the U.S. stock market and 36% of the world’s total stock market. While U.S. investors know when their portfolio is underperforming the S&P 500, they don’t know when they’re underperforming international indices.
The Betterment Portfolio is not designed to beat the market, which is difficult to do with any certainty and involves a lot of risk. Investing for the long-term is made less risky through a well-diversified portfolio like ours, which includes, but is not limited to, U.S. large cap stocks, which is the index measured by the S&P 500. There will always be parts that overperform and underperform, but we selected this specific mix of securities to help prevent your performance from experiencing extreme up or down changes, the way a more concentrated portfolio would do.